Summit Partners Nears Final Close on Fund VI –

BOSTON – Despite numerous published reports to the contrary, Summit Partners has not closed on a new $2 billion fund. Not yet anyway.

The 16-year old venture capital firm held a first closing on Summit Ventures VI in December, and a source at the firm said that a final close is expected to occur as early as this month. Moreover, the Boston-based investment outfit is said to have encountered virtually no difficulties in raising the fund, and secured a majority of its limited partner commitments in about two months.

“Each fund they’ve raised to date, with the exception of this one because it’s so new, has been top quartile,” said one returning investor. “That gains a lot of trust. And unlike a lot of veteran fund managers, [Summit] didn’t get caught up in the [dot-com] investment frenzy of last year.”

Better Late Than Early

Coming in the wake of Crosspoint Venture Partners’ November decision to pull the plug on its $1 billion early-stage tech fund, the sheer size of Summit’s Fund VI seems almost ludicrous at first glance. After all, why would a VC firm want to raise such a colossal amount of capital in the midst of a frosty investment environment?

The answer is simple. Whereas Crosspoint intended to focus on early-stage tech companies – which still carry a fair amount of risk – Summit traditionally backs later-stage companies that, in many cases, have already posted a profit. Fund VI’s investment strategy will not stray from that beaten but proven path, and will capitalize primarily financial services, medical and technology plays, including communications, semiconductor and optical networking firms, said a source familiar with the new offering.

As institutional investors begin to steer clear of early-stage VC funds to mitigate risk and maximize their returns, focusing on later-stage firms is a good move for Summit, noted Jesse Reyes, managing director of market research with Venture Economics, the publisher of Venture Capital Journal.

At double the size of its $1 billion Fund V, Summit’s latest vehicle will likely make investments in the $10 million to $100 million range, but generally gravitate toward $20 million to $35 million deals.

Historically, Summit has taken a lead role on about 90% of its investments, and will continue to do so with Fund VI. Specializing primarily in buyout-focused deals, the firm traditionally takes a majority ownership stake in the companies it invests in, and likely will also continue that trend with its newest vehicle.

It isn’t the same-old song all around, though. For the first time, Summit is upping its carried interest rate from 20% to 25%, to “fully incentivize all levels of partners down to senior associates,” noted one source.

Moreover, Summit told its limited partners it expects to concentrate approximately 10% to 20% of its investments in international markets, particularly in Europe and Israel because of the attractive technology opportunities in those areas. Reflecting that heftier overseas emphasis, the firm is rumored to be relocating at least one of its general partners to Europe within the year.

Summit declined to comment on the new fund, but a source close to the firm confirmed that there is still dry powder left from Fund V. Meaning that, although Fund VI is slated to close this month, the firm won’t call 100% of the capital or make any investments from the new vehicle until its previous capital reserves have been fully invested, he added.